South Africa raises interest rates to 14-year high
Central bank decides on 10th straight hike as it raises its inflation forecast for the year and blackouts plague country.
South Africa’s central bank has raised its benchmark interest rate to a 14-year high and revised up its inflation forecast for this year.
The bank on Thursday lifted the rate by half a percentage point to 8.25 percent in what it said was a unanimous decision by its monetary policy committee. It was the 10th consecutive hike by the South African Reserve Bank.
Governor Lesetja Kganyago said the decision was aimed at increasing confidence that inflation could be reined in “sustainably over time”.
South Africa’s monetary policymakers started raising rates in November 2021 and decided on their steepest hike in a decade – 0.75 percentage points – in July.
The rand dropped to record lows after the announcement and was trading at 19.74 against the dollar at 15:27 GMT, two hours after the rate announcement.
The latest hike was higher than some analysts’ expectations, but South Africa has faced persistent price pressures.
“Given upside inflation risks, larger domestic and external financing needs and load-shedding, further currency weakness appears likely,” Kganyago said.
South Africa has been battered by record blackouts – known as load-shedding – that have hampered economic activity over the past year as problems at its beleaguered power utility Eskom have mounted.
The outages are costing more than $50m in lost output each day, according to estimates by the energy minister.
“While the prevailing local supply-side issues around energy and logistics are not considered to be within the ambit of monetary policy, they do adversely impact inflation and demand by lifting the cost of living and operations,” said Mamello Matikinca-Ngwenya, chief economist at South African bank FNB.
Inflation dropped to its lowest level in almost a year in April, slowing to 6.8 percent from 7.1 percent in March. Yet, food prices remain stubbornly high, having experienced record increases over the past 12 months.
On Thursday, the central bank said it expected inflation to average 6.2 percent this year, 0.2 percentage points higher than earlier forecasts.
“With core goods and food higher in the near term, headline inflation for 2023 is revised up,” Kganyago said. “Headline inflation for 2024 also increases to 5.1 percent.”
Policymakers around the world are battling elevated inflation caused largely by surging energy and food prices following Russia’s invasion of Ukraine.